SEBI Fines Brightcom Group, Four Others Rs 34 Crore For Disclosure Violations

The Securities and Exchange Board of India penalised Brightcom Group and others Rs 34 crore in total on Thursday for alleged disclosure violations and misrepresentation.

The regulatory order by whole-time member Ananth Narayan G also banned the entities from the securities market for one to five years. The others include Chairperson Suresh Reddy and Whole-Time Director Vijay Kancharia, both banned for five years. They were also fined Rs 15 crore, according to the order.

The company and its directors Yerradoddi Ramesh Reddy and Y Srinivasa Rao have been banned for a year. They were fined Rs 4 crore in total. If they are not able to pay the fines, an interest of 12% per annum will be imposed after 45 days from the date of the order.

The company has also been directed to file a statement explaining the overall impact of the non-compliances within three months from the date of the order with the stock exchanges.

"The misrepresented financial statements with inflated profits, along with disclosure violations, led to investors not having the true, fair and timely assessment of the financial position of the company," the SEBI whole-time member mentioned in the order. "Permitting this situation to continue would undoubtedly harm the interest of the investors."

"Therefore, in addition to penal or deterrent measures, it is necessary to pass remedial directions as well to correct the distorted picture thereby enabling investors to take an informed decision about their investments," the order said.

At first, SEBI had received complaints of irregularities in the financial statements of the company from the period of October 2020 to March 2021. These complaints pointed towards irregularities during the period of FY15 and FY20. Thereafter, findings of overstatement of profits by adopting wrong accounting, and non-cooperation of the company led the market regulator to open a detailed investigation.

The regulator observed in its investigation that BGL wrongly capitalised research and development expenses as intangible assets, violating accounting standards. Additionally, the company failed to recognise impairment losses in a timely manner.

It deferred reporting an impairment loss of Rs 411.8 crore in FY19 and another of Rs 868.3 crore in FY20. Instead of recording these losses in the profit and loss account, BGL placed them under other comprehensive income, misleading investors about the company's financial health.

The investigation also found that the promoters of BGL used these manipulated financial statements to offload their shares at inflated prices. The promoters allegedly benefited from the artificially high stock prices before the true financial condition of the company was revealed.